Market volatility edged lower through the past week of trade, suggesting that we may continue to see Rangebound market conditions through the near term. Our DailyFX Currency Volatility Index fell to fresh monthly lows, and major pairs such as the Euro and British Pound continue to move within fairly narrow bands. Such conditions leave trending-based strategies at a clear disadvantage, while range trading setups may look particularly attractive in the week ahead.
Market Conditions Summary
Market volatility edged lower through the past week of trade, suggesting that we may continue to see Rangebound market conditions through the near term. Our DailyFX Currency Volatility Index fell to fresh monthly lows, and major pairs such as the Euro and British Pound continue to move within fairly narrow bands. Such conditions leave trending-based strategies at a clear disadvantage, while range trading setups may look particularly attractive in the week ahead.
Preferred Strategies
Market conditions now favor our “Pairs to Range Trade” report, as major currencies show little willingness to break out of their well-defined trading channels. At the opposite end of the spectrum, trendless price action leaves our SSI Signals at a clear disadvantage; these tend to underperform when prices fail to set fresh peaks or troughs. Our difficult-to-classify “Picking Tops and Bottoms” report lies somewhere in the middle of our preference scale, as key pairs may see worthwhile short-term tops and bottoms in the days ahead.
Discretionary Strategy Outlook
[B]Pairs to Range Trade – [/B]Major currencies continue to see sharp volatility on an intraday basis, but a cursory look at daily or weekly charts shows that most remain within clear ranges. Given a drop in broader market volatility, we have little reason to expect that these conditions will shift in the week ahead. As such, we will look to our “Pairs to Range Trade” report for attractive setups in the week ahead.
[B]Speculative Sentiment Index Trading Signals – [/B]Our SSI signals have proven somewhat disappointing through recent trade, as the SSI tends to underperform in sideways/choppy trading markets. Given that we expect such market conditions to persist, traders may decide to trade the SSI with less size or not at all until we see a clear shift in market conditions.
[B]Tops and Bottoms[/B] – There is no set trading style for this report, and as such, it is a bit difficult to set a market conditions-based bias for its trading signals. That said, currency pairs are fairly likely to set near-term tops and bottoms through the days ahead—making these signals an ostensibly attractive proposition.
[B]Hedging Radar[/B] – Hedging strategies typically outperform during times of directionless price action. As such, the Hedging Radar report may offer some attractive setups through the near term.
Systems Outlook
[B]Dynamic Carry Trade Basket [/B]– Please see our weekly report on Carry Trades for a better idea on what to expect through short-term trading. (Carry Trade Rises as Rate Expectations Reinforce Yield Differentials)
[B]Technical Analyzer and Signals from Thomson IFR [/B]– Pay special attention to range setups in the week ahead, while underweighting signals that may require strong trending until market conditions improve.
Chart Definitions
[B]Volatility Percentile[/B] – The higher the number, the more likely we are to see strong movements in price. This number tells us where current implied volatility levels stand in relation to the past calendar year of trading. We have found that implied volatilities tend to remain very high or very low for extended periods of time. As such, it is helpful to know where the current implied volatility level stands in relation to its calendar-year range.
[B]Trend[/B] – This indicator measures trend intensity by telling us where price stands in relation to its 52-week range. A very low number tells us that price is currently at or near yearly lows, while a higher number tells us that we are near the highs. A value at or near 50 percent tells us that we are at the middle of the currency pair’s annual range.